DSCR (Debt Service Coverage Ratio)

DSCR is a borrower’s net operating income divided by its total debt service. It answers the first question any underwriter asks: does the cash flow cover the debt payments, and by how much.

Formula

DSCR = Net Operating Income / Total Debt Service

Total debt service includes principal and interest on the proposed facility plus any existing debt that ranks alongside it. For real estate, the income figure is property NOI. For an operating company, lenders often use EBITDA or a defined cash flow figure in the numerator.

What is a good DSCR?

A DSCR of 1.0x means cash flow exactly covers debt service, with no cushion. Most lenders want headroom above that. Typical minimums sit around 1.20x to 1.25x for stabilized commercial real estate, and higher for riskier or transitional assets. The right threshold is set by your credit policy, not by a rule of thumb.

Why it matters

DSCR drives loan sizing, covenant setting, and the stress cases in a credit memo. A deal that clears at 1.30x today but falls below 1.10x under a modest revenue decline is a very different risk than one that holds above 1.25x through the cycle.

How vishwa.ai calculates DSCR

vishwa.ai spreads the borrower’s financials, computes NOI or the agreed cash flow figure, pulls debt service from the term sheet and existing obligations, and reports DSCR with drill-down to every input. Because each number traces back to the source document, you can show an examiner or an LP exactly how the ratio was built.

See also: NOI, debt yield, global cash flow analysis.